Shiseido Company, Limited History

Address:

7-5-5, Ginza, Chuo-ku
Tokyo 104-10
Japan

Telephone: (03) 3572-5111
Fax: (03) 3574-8380

Public Company
Incorporated: 1927
Employees: 22,045
Sales: ¥588.57 billion (US$5.12 billion) (1997)
Stock Exchanges: Tokyo Luxembourg
SICs: 2844 Perfumes, Cosmetics & Other Toilet Preparations; 5812 Eating Places; 5999 Miscellaneous Retail Stores, Not Elsewhere Classified; 7231 Beauty Shops; 7991 Physical Fitness Facilities

Company Perspectives:

We aim to identify new, richer sources of value and use them to create beauty in the lives and culture of those we serve. Our Criteria for Corporate Activity are: We seek to bring joy to our customers; we are concerned with results, not procedures; we share frankly with each other our real priorities; we give free rein to our thoughts and boldly challenge conventional wisdom; we act in the spirit of thankfulness.

Company History:

Shiseido Company, Limited is the leading cosmetics company in Japan and one of the largest in the world. At home and in more than 50 countries abroad, Shiseido offers a variety of makeup, skin-care, and hair-care products. In Japan, the company markets additional products, including toiletries, foodstuffs, pharmaceuticals, and fine chemicals. Shiseido franchises about 25,000 cosmetics retail outlets in Japan, both stand-alone and within department stores and supermarkets. It also runs various salons, upscale boutiques, health clubs, and restaurants. Of the company's sales, about 74 percent come from its cosmetics division; about 16 percent from its toiletries division, which comprises hair-care products, facial cleansers, soaps, bath additives, and fine toiletries; and the remaining 10 percent from a catch-all "others" division which covers pharmaceuticals, salon skin-care and hair-care products, fashion goods, fine chemicals, and salons, boutiques, health clubs, and restaurants. Increasingly global in its emphasis--although not traditionally successful overseas--Shiseido now derives about 13.5 percent of its sales from outside of Japan. The company's various products are manufactured at nine plants in Japan and ten abroad.

Beginnings as Western-Style Pharmacy in 1870s

In 1872 Yushin Fukuhara, former head pharmacist for the Japanese Admiralty, opened the Shiseido Pharmacy on the Ginza in Tokyo--a bold stroke that created Japan's first Western-style pharmacy. The characters in the store's name and the store's philosophy were derived from classic Asian philosophy. Shiseido's name implies "richness of life," which, according to Confucian thought, can be reached only through harmony of mind, body, and soul. The small store, in a populous shopping area, attracted purchasers of traditional remedies as well as curiosity-seekers interested in the novelty of Western imports; personalized service and high-quality products won their loyalty. In the 1880s Shiseido began to manufacture medicines, and in 1888 the company introduced a new product to Japan: toothpaste. Shiseido began selling cosmetic products that were processed by the standards used for medicines in 1897. The first such product was Eudermine skin lotion.

During the late 19th century, Japan was transformed by changes that had swept the country since the lowering of the two-centuries-old international trade barriers in the mid-1850s: some women still wore traditional white rice powder, hair lacquer, and stylized brows; others wore the lip salve, rouge, and skin-tone powder worn by Western women.

Traditional Japanese cosmetics and medicinal remedies came from herbs, other plants, and minerals that were ground and processed according to recipes that had been part of the Japanese culture since being introduced from China in the sixth and seventh centuries. Similar ingredients and processes were used to produce both lip balm and lipstick. The pharmacist was the purveyor of both.

In Japan, cosmetics for men had their heyday in the courtly and elegant latter part of the first millennium A.D. During the 19th century men still wore theatrical makeup--only males were permitted stage careers--but during the period, many Kabuki performers were poisoned by the lead in their makeup. In order to prevent future tragedies, the Japanese government established strict product and marketing regulations which were so elaborate, frustrating, and time-consuming that few foreign companies tackled the Japanese market. The regulations also hurt domestic companies, however. In the two years it took to license a product, many products lost their timeliness, and thus their appeal.

Emphasis on Cosmetics in the Early 20th Century

Japanese shipping was impeded just before and after the turn of the century, due first to the Sino-Japanese War of 1894 to 1895, then to the Russo-Japanese War of 1904 to 1905. Because of the difficulty in obtaining imports, by 1915 Shiseido's cosmetics replaced foreign products in popularity, to the point that the company began to shift its emphasis away from pharmaceuticals and to concentrate almost exclusively on the manufacture of cosmetics. In addition, in 1902 the company opened Japan's first soda fountain. The sale of foods remained a modest but profitable venture.

Shinzo Fukuhara, the son of Yushin Fukuhara, led Shiseido during this period and became Shiseido's first president in 1927. Shinzo Fukuhara had spent five years studying pharmacology at Columbia University in New York City, and had visited France for one year. In France, he made important ties with artists whose ideas influenced the development of Shiseido's marketing, advertising, and packaging. Shiseido's marketing director, Noboru Matsumoto, had also studied in the United States, at New York University.

Tokyo's growth helped the family business grow and prosper, even through World War I, when production and delivery of the company's products were adversely affected by wartime restrictions. It was after the war, in 1923--remembered in Japan as the year of the great Kanto Earthquake--that Shiseido took a daring step that would eventually expand its business far beyond the city and make it a national concern. At Matsumoto's urging, the company opened a series of retail outlets for Shiseido products in a franchise operation, in principle not unlike the franchise concept Ray Kroc of McDonald's introduced in the United States some 30 years later.

Shiseido had built its business as a family-run operation, paying special attention to the needs of its customers in Tokyo and the surrounding area. Repeat business resulted both from product excellence and personalized service. Special needs were recorded along with transactional details so that reminders could be tailored to each customer and timed to catch orders for replenishment. The franchised shops were to replicate the Tokyo store, with stock variations responding to local tastes and needs. The idea caught on because most franchisees, like the founding family, were willing to work long hours to earn customer loyalty.

In addition to over-the-counter retail sales, franchise owner-operators began conducting a mail-order business in 1937. They called it the Camellia Club, referring to the art nouveau-inspired flower logo designed by Matsumoto that Shiseido began using in 1915. The 25,000 franchise stores continued to do a steady large-volume business, with club members reaching about 9.6 million by the late 1980s. By then, the stores issued credit cards to members and kept in touch through a monthly magazine featuring fashion and beauty pointers.

The company's size ballooned quickly, outgrowing its status as a limited partnership. Reorganized as a corporation in 1927, Shiseido was listed on the Tokyo Stock Exchange. Neither the depression nor the following years of Japanese military buildup and war did much to flatten the company's growth curve.

By the 1940s Shiseido had become a trendsetter in the cosmetics industry. Even the bombing and devastation of many manufacturing sites during World War II did not result in the company's destruction. With the economic policies introduced by General Douglas MacArthur during the postwar years, Shiseido reorganized, and in 1949 the company was again listed on the Tokyo Stock Exchange.

Regaining its position as the country's cosmetics leader in the early 1950s--a position not seriously tested until the 1970s when foreign companies began to challenge Shiseido in earnest--Shiseido opened thousands of additional outlets, prospering with the franchisees as the economy's upsurge produced newly affluent customers. In 1952 the company set up a wholesale network for sales of soap, toothpaste, and sundries. The following year the Shiseido Institute of Beauty Technology was opened.

Overseas Expansion Begins in 1957

In 1957 Shiseido began international operations when it initiated manufacturing and sales operations in Southeast Asia. In 1960 the company began marketing in Hawaii. International operations boomed in the 1960s, as subsidiaries were established in Hawaii, New York, and Milan. Others opened during the following two decades in Singapore, New Zealand, Bangkok, Australia, France, West Germany, and the United Kingdom. In 1965 Shiseido began marketing products that were formulated especially for export markets.

During the early 1970s Shiseido introduced its broad product line in the United States, but the expected sales volume failed to materialize. About ten years later, Yoshio Ohno--at that time director of overseas operations&mdashøok a different, more successful approach: Shiseido offered an exclusive product line to each of several top-flight fashion retailers, including Bloomingdale's in New York and Bullock's in Los Angeles. By the mid-1980s these lines were earning $75 million annually and growing by 40 percent each year. This strategy succeeded not only in the United States, but in other countries as well.

Product Lines Revamped in the 1970s and 1980s

During the 1970s interest in the company's broad product line as a whole began to wane, and Shiseido began to consider new organizational and marketing directions. Many owner-operators who had worked diligently for decades to maintain a loyal customer following were nearing retirement and seemed out of touch with the interests and tastes of the new generation of consumers. To young consumers, the stores lacked the freshness and excitement that earlier generations had found in them. Shiseido refurbished the stores, and new marketing analysis and techniques were applied.

Serge Lutens, a French "international image creator," joined Shiseido in 1980. The following year, the company began marketing cosmetics in China. Segmentation of the broad product line into five age groups for marketing purposes was instituted in 1982, with encouraging results. Other ideas that succeeded as part of this new approach were product diversification and retail diversification among the company's stores. Rather than making each store an outlet for all product lines, stores were organized into sub-specialties targeted at specific markets. Some became convenience stores, carrying household products as well as cosmetics. Others carried youth-oriented fashions. High-end beauty consultation services and exclusive product lines, similar to those in the high-fashion centers overseas, were other specialties. Still other stores carried cosmetics and fitness aids for men and women. In spite of this diversification, Shiseido had no intention of departing from its major role in the cosmetics industry; Shiseido stores carried other products primarily to attract customers for the company's beauty aids.

Despite Shiseido's size, the company did not abandon its founder's practice of associating beauty aids with health. For example, products in the Elixir skin-care product line contained an ingredient to protect sunbathers from ultraviolet rays. The company carefully researched all market segments, targeting them with certain products. For the rapidly growing older group, Shiseido introduced Medicated Flowline Active, used to prevent hair loss, promote its regeneration, and aid in circulation of the blood. Cle de Peau Program Care was designed to prevent skin from aging and to help it recover a youthful look. A chain of sports clubs and restaurants and a line of health foods also promoted physical fitness. In 1986 Shiseido acquired Carita S.A., a French beauty salon and beautician school chain, and in 1987 Shiseido opened another beauty salon, Alexandre Zouari, in Paris. The company acquired Zotos International Inc., the leading U.S. supplier of professional hair and salon products in 1988, and Davlyn Industries, Inc., a U.S. maker of cosmetics, the following year.

Some product lines were discarded despite brisk sales. Environmental concerns caused Shiseido to phase out products such as aerosol spray cans and nonbiodegradable diapers. New products and product lines continued to spur additional business. Research and development had been important to Shiseido's operations since its earliest days, and during the 1980s pharmaceuticals, as well as cosmetics, were being developed and tested in the company's domestic and overseas research centers. In 1988 pharmaceuticals reentered the Shiseido product family with the introduction of a line of over-the-counter drugs. Shiseido introduced its first prescription drug in 1993 with Opelead, used in cataract surgery and cornea transplants.

During the late 1980s Shiseido entered a three-year reorganization under the direction of president and CEO Yoshiharu Fukuhara, a grandson of Shiseido's founder and nephew of Shinzo Fukuhara. This restructuring strengthened the company's sales network and reaffirmed its long-held leadership position in the field. At the same time, Shiseido also bolstered its research and development operations by opening new research facilities in France in 1988, and in the United States in 1989.

Global Expansion in the 1990s

During the early and mid-1990s, Shiseido stepped up its efforts to become a global power in cosmetics. In part this was a response to price deregulation in Japan which began in 1991. With the company losing its traditional control over the pricing of its products at the retail level, revenues and profits inevitably began to fall. The effect of deregulation was compounded by the simultaneous rise in Japan of the type of discount chains that were prevalent in the United States. As the decade continued, Japanese trade barriers to imported cosmetics began to fall, and Shiseido faced serious competition at home for the first time in its history.

In response to these threats to its home market, Shiseido, which had traditionally targeted the high end of the cosmetics market, made a conscious effort to develop more lower-priced products. The company also divided its domestic cosmetics business into two units: cosmetics, which handled consultation-oriented products, and "cosmenity," which handled self-selected products. The two sectors were differentiated further in April 1996 when the marketing operations of the two units were completely separated.

It was in the overseas market, however, that Shiseido was making serious waves; building and acquiring factories, expanding into new markets, and growing through joint ventures and acquisitions. In 1990 the company established Beauté Prestige International S.A. in Paris to develop and market fragrances. The following year, production of perfumes and skin-care products began at the company's first European factory, located in Gien, France. After some tentative moves in China in the early 1980s, Shiseido became more serious about this rapidly growing market in the 1990s. In 1991 a joint venture called Shiseido Liyuan Cosmetics was set up with Beijing Liyuan Co. to develop, produce, and market premium cosmetics. Two years later production began at a new factory in Beijing, which led in 1994 to the debut of the highly successful, high-end, Aupres line of cosmetics, developed exclusively for the Chinese market. By mid-1997, Shiseido products were available in 130 stores in 32 Chinese cities. By the same time, company products were marketed in more than 50 countries worldwide, with the addition of Lebanon in 1995; Brazil, Cyprus, Israel, and Turkey in 1996; and the Czech Republic, Hungary, Croatia, and Vietnam in 1997. With sales in Asia and Europe increasing, Shiseido moved to increase its capacity by starting construction on a second plant in Taiwan in May 1997, and by reaching an agreement in June 1997 to develop a new production site in France's Loire region, scheduled to begin operations in January 1999.

On the other side of the Pacific Ocean, meanwhile, Shiseido was just as busy. In November 1996 the company bought the North American Hair Salon Division of Helene Curtis Inc. from Unilever United States, Inc., thereby adding the Helene Curtis professional salon hair-care lines to those of Zotos. Helene Curtis Japan Inc. was added in early 1997. Manufacturing capacity in North America was a concern, and in March 1997 Shiseido bought its fourth U.S. factory, planning to convert the New Jersey facility into one of the largest cosmetic plants in the world.

This heightened activity outside of Japan was intended to help the company reach the ambitious goals set by management in 1996. As part of a "Global No. 1" five-year plan, Shiseido aimed by 2001 to increase net sales from foreign operations to ¥120 billion, from ¥64.5 billion in fiscal 1997. The company also wanted overseas sales, which had grown from only eight percent of total revenues in fiscal 1997 to 13.4 percent in fiscal 1998, to double to 25 percent by 2001.

A year filled with noteworthy events, 1997 was also Shiseido's 125th anniversary, and the company marked the occasion by introducing Eudermine, its original product, to markets outside of Japan (1997 happened to also be the centenary of Eudermine's debut). In June 1997 Yoshiharu Fukuhara took over as chairman, while Akira Gemma succeeded Fukuhara as president and CEO. As they worked to attain their self-imposed goals, this new management team was likely to seek out additional overseas acquisitions. It appeared that Shiseido had finally gotten serious about its longtime global ambitions, and that success was beginning to follow in the wake of the company's new ventures.

Principal Subsidiaries: Osaka Shiseido Co., Ltd.; Shiseido Kako Co., Ltd.; Shiseido Beautech Co., Ltd.; Mieux Products Co., Ltd.; IPSA Co., Ltd.; Haramachi Paper Co., Ltd.; ETWAS Co., Ltd.; Shiseido Fine Toiletry Co., Ltd.; Shiseido Sales Co., Ltd.; Shiseido Pharmaceutical Co., Ltd.; Shiseido Logistics Company Ltd.; SFC Co., Ltd.; The Ginza Co., Ltd.; Shiseido Parlour Co., Ltd.; Shiseido Beauty Salon Co., Ltd.; Shiseido Real Estate Development Co., Ltd.; Shiseido Wellness Co., Ltd.; Mikawaya Co., Ltd.; Shiseido Lease Co., Ltd.; D'ici là Co., Ltd.; Ettusais Co., Ltd.; Shiseido Cosmenity Co., Ltd.; Qi Salon Cosmetics Co., Ltd.; Shiseido International Corporation (U.S.A.); Zotos International, Inc. (U.S.A.); Davlyn Industries, Inc. (U.S.A.); Shiseido Cosmetics (America) Ltd. (U.S.A.); Shiseido America Inc. (U.S.A.); Shiseido of Hawaii, Inc. (U.S.A.); Shiseido Cosmetici (Italia) S.p.A.; Shiseido Deutschland GmbH. (Germany); Shiseido United Kingdom Co., Ltd.; Carita S.A. (France); Alma Coiffure S.A. (France); Shiseido International Europe B.V. (The Netherlands); Shiseido Singapore Co., (Pte.) Ltd.; Shiseido (Australia) Pty., Ltd.; Shiseido (N.Z.) Ltd. (New Zealand); Shiseido International France S.A.; Beauté Prestige International S.A. (France); Shiseido Philippines, Inc.; Shiseido Thailand Co., Ltd.; Shiseido France S.A.; Taiwan Shiseido Co., Ltd.; Shiseido Liyuan Cosmetics Co., Ltd. (China); Les Salons du Palais Royal Shiseido S.A. (France); Shiseido Canada Inc.; Piidea Canada, Ltd.

Shiseido Company, Limited History

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